UK Markets close in 2 hrs 19 mins

Woodford Patient Capital Trust at record low! Worth a punt?

Tom Rodgers
Man shuffling cards

Shares in the Woodford Patient Capital Trust (LSE:WPCT) have plummeted to a record low on the news that Neil Woodford has been sacked from his billion-pound empire of funds.

Months of promises that plunge after plunge could be salvaged were all for naught when BlackRock finally cut Woodford loose from the flagship Equity Income Fund (EIF), with the additional news that all holdings would be liquidated.

In the year’s least surprising news, Woodford was then booted from Patient Capital Trust (PCT) too, albeit with the caveat he’ll serve out a three-month handover period.

But canny investors are often willing to buck the trend, being greedy when others are fearful and making a profit from others’ misfortune. You could pick up a giant pile of shares for a song. Is now the time to swoop in and make a killing?

What you’d get

Looking at the raw stats, the net asset value (NAV) of the PCT is trading at a massive discount. A 44% discount, to be exact. That’s stat number one. The NAV was last calculated on 11 October 2019. But compare that to the NAV at launch in April 2015: it was 100p. Now it’s around 66p.

In terms of the trades being made, investors are still buying the PCT in sizable amounts. £42,000 here, another £33,000 there.

But when the dust has settled, I’d wager the liquidation of the EIF could reveal a sizable gap between the real figures and its last posted NAV. If these figures really were inflated, then lawsuits will abound.

While Woodford did make a desperate last-ditch effort to claw back some cash by buying proven FTSE 100 dividend payers BT, Imperial Brands, and IAG, these make up less than 3% of the fund.

Looking at the other holdings, there’s an abundance of unlisted healthcare and biotech stocks. 10% of the fund is in BenvolentAI. Anyone heard of them? 8.3% is in Oxford Nanopore Tech. Another 8% is invested in Autolus Therapeutics.

I have absolutely no idea what these companies do, who their competitors are, or whether they are doing what they do any better than their rivals. It’s estimated that around 30% of all the companies that make up the fund are unquoted, making them difficult to value and trade. It means that if the fund manager wants to sell, there may not be enough buyers for the other side of the trade.

How to lose money fast

My general approach to making money in the stock market sits on one fundamental principle: to have at least an outline understanding of what I’m investing in.

For example, the highly-touted Futura Medical was once the darling of the new crop of pharma businesses. It has never made a profit, and investors taking a risky punt have seen the share price depressed as drug launches have not panned out.

In my opinion, putting money into the Woodford Patient Capital Trust now would be like buying a house that’s about to fall into the sea, on the off chance that the tide will turn around and start going the other way.

You might as well withdraw a bunch of tenners from the nearest ATM and chuck them on a bonfire. Be smart. Protect your wealth. It’s exponentially easier to save what you already have than to chase foolish losses.

More reading

Tom has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019